One of the fundamental factors of your success in the Forex market is the correct choice of a broker, or, in other words, the company in which you open an account and through which you will conduct currency transactions. The right choice of broker will help both increase capital and preserve the mass of nerve cells.
Currently, there are many companies that provide brokerage services. All of them can be divided into two main categories:
- Dealing Centers (DC);
- Investment Banks.
Here we are going to describe the main parameters that are fundamental when choosing a broker, from the most important to the minor.
- Amount of start-up capital
So, the fundamental factor in choosing a broker is the size of your starting capital. Although, at present, for a wallet of any thickness, there is an application in the foreign exchange market.
The vast majority of brokerage companies require a deposit of $2000. Companies starting to work with $10,000 are also common. Moreover, this does not mean at all that for a large amount of invested funds, you will be offered the best conditions and absolute guarantees of timely payments and the preservation of earnings. It all depends on the particular service provider.
There are proposals to start trading with $1000 or even less (the so-called mini-forex) when your position is not brought to the market directly, but only by summing up the positions of several participants. If you adhere to the belief that you need to start working only with reputable western banks, then your account cannot be less than $50,000 and more often $100,000.
There is an opinion that the work should begin with just such amounts. However, in our conditions, and based on our own experience, we can do with much less money. The main rule that you should adhere to when determining start-up capital is that losing even the entire amount should not be ruinous. One should also not take bids seriously from $100, etc.
The optimal amount of invested funds, especially for a novice player, is in the range of $2000 – $10,000.
- Fame and reputation of a broker
Before investing, you should carefully collect information about your future broker. Pay attention to the existence of the company in the services market. Obviously, more “age” brokers are preferable to beginners because of stability and reliability. Although sometimes it is new companies that offer the most comfortable working conditions.
Ask your friends traders or visit online forums on currency trading. Typically, fraud does not go unnoticed in the trading environment. Of course, you can come across anti-advertising, but if the name of your potential broker often appears in various blacklists, you should pay attention to such facts. Choose those brokers who will be able to collect more positive reviews.
- Opening hours during the working week
Preference should be given to companies that open on Monday night and finish work closer to midnight on Friday. Imagine that you leave a profitable position for the weekend in order to earn more. Place a protective order so that even with an unfavorable outcome, earn a little and go quietly, hoping to significantly increase your capital. It may happen that on Monday night, an unexpected event occurred that contributed to a sharp jump in the rate against your position. A broker who comes to work at nine in the morning will execute a protective order at the price that he sees on his monitor.
Thus, due to a break in the broker’s work, it will be rather risky for you to leave the position open for the weekend.
When providing services in the Forex market, the broker earns only on the so-called spread – the contrast between the purchase and sale price of a currency. The spread is the same as the difference in the exchange rate when exchanging at the bank. Do not confuse Forex with the securities market, where you are charged a commission on each transaction.
The vast majority of Forex brokers earn only a spread. Therefore, if you come across a bank or a DC that has any additional commission, feel free to proceed with the search for another option, as it is unnecessary to remind you that any commission negatively affects the state of your account.
It should be remembered that everywhere there is a commission for transferring a position in a day – the so-called Swap. But Swap has the peculiarity of being not only negative but also positive. The state of your deposit depends on the commission.
Spread is the broker’s main income. There are two types of brokers: with a fixed spread and with a floating one. A constant spread is characterized by a constant difference between the rate of purchase and sale, regardless of the market situation.
Many DCs practice the floating spread rule, limiting themselves to the rule that a steady spread is maintained in a calm market. However, in practice, almost every day, there are moments with a sharp fluctuation in prices, at which spreading the spread sometimes by 50 (!) points not only creates inconvenience but can be very detrimental to the deposit.
But the floating spread has its advantages. For example, in a calm market, a floating spread can decrease to 1-2 points, when a fixed one remains constant in any situation.
The spread in the forex markets can be described as the difference between the different purchase and sale prices for any particular currency pair. Before any trade really becomes profitable, forex traders must first consider the value of the spread automatically deducted by the broker. A lower spread naturally ensures that successful trades will move to profitable territory earlier. The fx-brokers with low tight spreads allow us to enter a deal in the market with less losses.
- Reliable communication with a broker and technical support
There must be a constant round-the-clock communication with the trader, preferably not only through an electronic terminal, but also an ordinary telephone. Technical support in most brokerage companies runs from 9 to 18. Unfortunately, before opening an account, it can be difficult to test the communication.
- Additional customer service products
Various technical analysis programs, receiving free quotes and news will greatly facilitate your life, especially in the first months of trading. Pay attention to this item if you are faced with a choice between two equivalent brokerage firms.
- Ease of working with software
Of course, you can get used to any software. But still, before concluding the contract, we recommend installing a demo version of the trading terminal and the programs provided. A friendly, intuitive interface will contribute to a pleasant work from the very first days, although, of course, this item can be considered secondary when choosing a broker.
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